Difference Between Fixed and Floating Interest Rates
The fundamental difference between fixed and floating interest rates lies in how the interest rate behaves over time.
April 13, 2026
PR & Media
Home Loans: Choosing Between Fixed Vs Floating Home Loans And How They Affect EMIs Over Loan Tenure
One of the most important aspects in homebuying is selecting the right kind of home loan. The rate of interest and the tenure has a direct bearing on your finances and also dictates your future lifestyle
One of the most important aspects in homebuying is selecting the right kind of home loan. The rate of interest and the tenure has a direct bearing on your finances and also dictates your future lifestyle.
Fixed and Floating Interest Loans
There are essentially two types of loans - fixed and floating interest loans. The choice between a fixed and a floating rate loan not only affects the monthly payments, but also the total interest paid over the entire tenure of the loan. While lenders and advisors promote one option over the other depending on the market conditions, the better choice is highly subjective.
A fixed interest rate tends to remain unchanged for the entire duration of the loan. Since the rate is locked in, the borrower’s equated monthly instalments (EMIs) stay the same throughout the fixed period. The predictability allows borrowers to plan their finances with confidence and to be untouched by the market fluctuations in interest rates. However, most lenders hold the fixed-rate loans at a higher rate than the floating ones to compensate for the future.
A floating rate, on the other hand, moves along with the market conditions. It is mostly linked to an external benchmark set by the Reserve Bank of India (RBI).
When the market changes, the loan’s rate is reset to keep up with the market. As a result of this, the EMIs tend to increase or decrease. Floating rates offer flexibility to the buyer, as they can also benefit from falling interest rates.
Says Viren Mehta, founder and director, ElitePro Infra: “With a floating home loan, you will likely find that the rate begins 1-2.50 per cent lower, ultimately paying less with each term, provided the market rate declines. This will result in your EMI increasing or decreasing by a few hundred to several thousand rupees, depending on the amount borrowed and tenure.”
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